Business Growth

Question 1

When must a business grow

Answer 1

When it sells more output over a period of time

Question 2

Why may a business grow

Answer 2

help to increase market share
improve profits
increase revenue
help a business to open more branches

Question 3

What 3 ways will a business use to enter a new market

Answer 3

entering overseas markets
amending its marketing mix (product, price, place and promotion)
taking advantage of technology

Question 4

Adv of internal(organic) growth

Answer 4

a business can maintain its own values without interference from stakeholders
higher production means the business can benefit from economies of scale and lower average costs

Question 5

Disadv of internal ( organic growth)

Answer 5

there maybe be a long period between investment and return on investment
growth may be limited and is dependent on the reliability of sales forecasts

Question 6

What involves external( inorganic growth )

Answer 6

External growth (inorganic growth) usually involves a merger or takeover

Question 7

Define merger

Answer 7

A merger occurs when two businesses join to form a new (but larger) business

Question 8

Define takeover

Answer 8

A takeover occurs when an existing business expands

Question 9

What are the 4 methods of takeover or merger

Answer 9

Horizontal integration
Vertical integration

Question 10

Explain horizontal integration

Answer 10

occurs when two competitors join through a merger or takeover.

The new business then becomes more competitive and increases its market share

Question 11

Explain foward vertical integration

Answer 11

occurs when a business takes control with another that operates at a later stage in the supply chain.

Question 12

Explain backwards vertical integration

Answer 12

occurs when a business takes control of a business earlier in the supply chain.

Question 13

Explain conglomerate integration

Answer 13

occurs when businesses in unrelated markets join through a takeover or merger.

This enables businesses to spread their risk over a wider range of products and services.

Question 14

Adv of inorganic growth

Answer 14

competition can be reduced

market share can be increased very quickly overnight

Question 15

Disadv of inorganic growth

Answer 15

it can be expensive to takeover/merge with another business

managers may lack the experience to deal with the other businesses

Question 16

Define plc

Answer 16

Business where shares are sold on the stock market . People who owns a share is called a shareholder - now have a voice in how the business operates

Question 17

When a business sells shares on a stock market

Answer 17

this is known as ‘floating on the stock exchange’.

Question 18

Adv of being a plc

Answer 18

the business has the ability to raise additional finance through share capital
the shareholders have limited liability
there are increased negotiation opportunities with suppliers in terms of prices because larger businesses can achieve economies of scale

Question 19

Disadvantages of being a PLC include:

Answer 19

it is expensive to set up, requiring a minimum of £50,000

there are more complex accounting and reporting requirements

there is a greater risk of a hostile takeover by a rival company

Question 20

Definition of capital

Answer 20

Capital is the money used to build run or grow a business

Question 21

What is the difference between internal and external capital

Answer 21

Capital found from within a business is called an internal source of finance, whereas capital found from outside a business is an external source of finance.

Question 22

Definition of retained profits

Answer 22

profits held back in the business for reinvestment rather than being issued as dividends.

Question 23

Advantages of retained profits

Answer 23

cheap, quick and convenient, and there is easy access to the money

Question 24

Disadvantages of retained profit

Answer 24

once the money is gone, it is not available for any future unforeseen problems the business might face

Question 25

Define selling of assets

Answer 25

An internal source of finance which includes selling unwanted assets e.g machinery and equipment

Question 26

Adv of selling assets

Answer 26

convenient, can create space for more profitable uses, and can be quick

Question 27

Disadv of selling assets

Answer 27

the business might not get the full market value of the assets or even sell them at all the business might also need the assets in the future

Question 28

Owners savings adv

Answer 28

Cheap quick and convenient

Question 29

Ownersaving dis

Answer 29

the owner might not have enough savings or may need the cash for personal use

Question 30

3 types of external source of finance

Answer 30

Loan capital Share capital Stock market flotation

Question 31

Define loan capital

Answer 31

is a lump sum of capital borrowed from a bank and paid back in instalments.

Question 32

Adv of loan capital

Answer 32

regular repayments are made over a period of time

Question 33

Dis adv of loan capital

Answer 33

Can take a while for loan to be approved Business may not qualify for a loan Interest is applied can be expensive Banks may ask for collateral ( security ) In case business fails to make repayment

Question 34

Share capital definition

Answer 34

is money raised when a business becomes a private limited company by offering shares to a select group of people in return for capital.

Question 35

Adv of share capital

Answer 35

does not have to be repaid and no interest is applied a business can choose to whom it offers shares

Question 36

Disadv of share capital

Answer 36

profits made by the business are paid to shareholders (these payments are also known as dividends), so control of the business gets diluted

Question 37

Define stock market flotation

Answer 37

is money raised when a business becomes a PLC (public limited company) by offering shares to the public to buy.

Question 38

Adv of stock market flotation

Answer 38

this option can raise large amounts of capital as it is easy for the public to buy shares through a stockbroker or bank the shares don’t have to be repaid and no interest is applied the business can also gain recognition through this method

Question 39

Disadv of stock market flotation

Answer 39

it can be complicated and expensive and there is the possibility of losing control, as anyone can buy shares the profits are paid to shareholders and the business records are made public there is also the risk that some investors will only buy shares to make a quick profit by selling them when the share price increases